No matter how much money you make or how good of a saver you are there is one
thing that will absolutely ruin your chances at being wealthy this one thing
affects millions of Americans and while numerous people struggle with the daily
with proper education in a financial gameplan you can avoid being one of
these individuals therefore in this video I will share with you the one
thing you need to avoid to be rich and if you're new to the channel then hit
the subscribe button below for more life-changing content when you think of
Albert Einstein you probably think of science and the famous e equals
mc-squared equation however Einstein was also an astute observer of the financial
world one of his most prolific observations was the power of investing
over time when he said that compound interest is the eighth wonder of the
world and that Hugh understands it earns it he who doesn't pays it whether we
realized it or not he couldn't have been more right and while this certainly
isn't the one thing you need to avoid to be rich its power can be greatly reduced
by the financial element I am about to go over so what is a 1 thing that will
ruin your finances that one thing is debt and more specifically unproductive
debt I say unproductive debt because there are of course forms of debt that
can actually help you increase your wealth for instance taking on a mortgage
to buy an investment property that will earn you cash every month is certainly a
productive form of debt to have even incurring student debt can be beneficial
if it grants you access to lucrative jobs in the future however in both these
circumstances having these forms of debt won't allow you to harness the full
potential of compound interest and isn't as ideal as being debt-free
so let's first recap how beneficial compound interest can be when leveraged
and then go over some of the ways you can get out of debt and build wealth
fast let's use an example to illustrate the power of compound interest let's say
we have two people Jessica and Alan Jessica invests $100 a
month or $1200 a year from the age of 18 to the age of 25 she earns 10% per year
on average with her investments by the time she stops investing at the age of
25 she will have a little over $15,000 in her nest
over the course of the next 45 years that nest egg will continue to grow
assuming that it continues to grow to an average annualized rate of 10% per year
she will end up with 1.1 million dollars in a portfolio at the age of 70
that's all achieved with eight years of investing $100 a month in essence
Jessica becomes a millionaire by investing nine thousand six hundred
dollars of her own money on the other hand we have Alan Alan doesn't start
investing at age 18 instead he starts at the age of 26 which is just after
Jessica had finished all of her investing
he also invests a hundred dollars a month however unlike Jessica he does it
from the age of 26 all the way until the age of 70 Alan invests fifty four
thousand dollars of his own money over the course of his years so logically
Alan would end up with much more money at age seventy compared to Jessica right
not quite in fact at 70 Alan ends up with a nest egg of just under 950
thousand dollars or approximately a hundred and fifty thousand dollars less
than Jessica this is in spite of the fact that he invested six times more of
his own money than she did what's more is that even if you extended this
example further Alan will never catch up with Jessica if Alan kept working in and
investing $100 a month all the way to the age of a hundred Jessica would still
have more money than him in fact her lead would be even larger than it was
when they were 70 at the age of 100 Jessica would have nineteen point two
million dollars to her name Alan would have sixteen point seven million dollars
so you're probably coming to realize that Einstein wasn't lying when he
touted compound interest as being one of the most powerful forces in the
financial world now how would this situation differ if debt were involved
roughly 80 percent of Americans carry some amount of debt so incorporating
this element is important to get an accurate picture at just how impactful
this wealth killer can be let's rerun the loss example and see how the outcome
would change if debt were involved Jessica who understands the value of
investing tends to find yourself buying things as a form of retail therapy to
cope with the stress for job because she has to make monthly debt repayments
of $50 on her student credit and credit card balances jessica is limit
to investing $50 a month which he does for seven years starting at the age of
eighteen I'm like when she was investing $100 a month for reduced contribution of
$50 a month for eight years will allow her to accumulate five hundred thirty
two thousand seven hundred and fifty six dollars at age 70 which is much less
than when she was making larger contributions of course in short being
required to make debt payments over the span of her investing life will cost her
more than five hundred thousand dollars let's now see Oh Alan's situation would
differ based on his own debt management strategies like the previous example
Allen still procrastinates and doesn't start to invest for those first eight
years making him 26 years old when he finally begins contributing to his
investment account luckily during that time Ellen was using his free cash to
pay off all the student credit card debts leaving him absolutely debt-free
this means that he has two hundred dollars a month to contribute to his
investment fund which he does from age 26 to 70 well unlike the previous
example where Allen's procrastination hurt his financial success compared to
Jessica being able to contribute more because he was deaf free allows him to
accrued 2.1 million dollars by the time he's 70 compared to Jessica's $500,000
in change the reality is that these figures are quite conservative when
showing just how impactful it can be to free up your cash flow for investing by
eliminating your debt many people don't realize just how
taxing this financial burden can be as a 20-19 the average American had thirty
eight thousand dollars worth of personal debt which doesn't even include having a
mortgage with 25 percent of that debt being tied to credit card balances think
about that one-quarter of the average person's debt is being subjected to
interest rates of almost 20% annually not even the best investors in the world
could dream of getting that kind of return yet millions of people are freely
giving away significant portions of their wealth due to their poor spending
habits in fact 2 in 10 Americans spend anywhere from fifty to a hundred percent
of their monthly income on debt repayment imagine the investing
potential if you put that five hundred dollars a month into the market rather
than handing it over to the bank so now that you're scared straight into
avoiding debt that best you can what are some ways you can keep your personal
to a minimum first if you're lucky enough to not have any debt right now
then you should research ways to ensure that you keep it that way if you're
planning to go to college look into an education savings account or a 529 these
vehicles are ways to start saving for college while lowering your tax burden
which is always a plus next look into scholarship opportunities
very few students realize just how much for you money is out there to be claimed
so do yourself a favor and research grants that may apply to you next don't
be afraid to have a summer job and work during the school year part-time and you
don't have to wait until you start college to do this begin to work during
high school which will allow you to build up a tuition nest egg so you can
keep a reasonable schedule when you start college and studying begins to
consume more of your time moreover make sure that you always have an emergency
fund I talked about emergency funds a lot because they are critical to
reducing your financial stress and will help you to avoid having to put
purchases on credit if the need for a large financial outlay were to arise
general guidelines suggest saving three to six months worth of living expenses
in your emergency fund but I always advise saving up a year's worth to give
you some extra breathing room speaking of airing on the safe side be
sure to carry an appropriate level of insurance for those catastrophes that
you wouldn't be able to cover with your savings catastrophic health emergencies
are a good candidate for this but what if you're already in debt and need help
getting out how should you proceed the first step is choosing a debt
elimination strategy to commit to until your debt is cleared three of the most
popular strategies are the debt snowball dad avalanche and debt tsunami the debt
snowball is the one made famous by financial personalities such as Dave
Ramsey it has you order your debts from these smallest to the largest balance
and pay them off in that order regardless of the interest rates on
those debts the positive side and using this method is a momentum that you can
build up for yourself by quickly wiping out those bills the downside is that it
isn't the most mathematically efficient way to get out of debt all else being
equal the data Avalanche is the more mathematically efficient option if you
can stick to it it has you order your debts from the highest to the lowest
interest rate and pay them off in that order this is regardless of the size of
the loan itself the upside is the fact you'll be paying less in interest the
downside is in some situations it may take quite a while to get rid of that
first bill for those who are more motivated by seeing the balances of the
debts themselves going down this may not be much of an issue but for those who
are trying to reduce the total number of deaths they have this method can be
problematic finally the debt tsunami has you order
your debts from the most emotionally stressful to the least emotionally
stressful and pay them off in that order in some cases this could be paying off
the largest balance that also has the lowest interest rate first however in my
experience that is not commonly how it goes most of the people that I've seen
use the strategy tend to use it because there are personal loans between family
or friends that are causing a lot of stress in the relationship the person
with the debt uses a tsunami to get rid of that loan first and then often
switches to a different strategy such as the snowball or avalanche there's
nothing stopping you from starting with one strategy that will help you get
going and then switching to another that will work for you longer term I know a
lot of people have started with the snowball to get themselves some momentum
and then switch to the avalanche once they were on a roll so that they could
save on interest another thing I would recommend looking into is the power of
the debt snowflake if you haven't heard of it the death snowflake is a strategy
where you find ways to free up money that you can put towards your debt
payoff strategy this could be by getting a second job or selling off some of your
possessions the nice thing about it is that it works well with any of the three
strategies I mentioned and we'll have your debt balances decreasing in no time
so there you have it if you want to get serious about growing your wealth then
work towards eliminating what that you have while using that freed up money to
invest towards your future rich life thanks for watching if you want to go
from the life you have to the life you deserve then hit the subscribe button
now
you